The barriers Detroiters face when they try to buy homes are legion. Banks have refused to issue mortgages even to buyers with less-than-great credit scores. Appraisers have consistently undervalued Detroit property — which many experts have decried as discriminatory — to the point where the mortgages are too small to interest lenders. The difficulty of getting a mortgage in the city has forced the vast majority of Detroit buyers to pay for homes in cash.
Even people approved for a mortgage can struggle to close on a house in Detroit. Low appraisals create a gap in the amount of money a bank will approve for a mortgage and what a buyer agrees to pay. The buyer has to make up the difference in expensive down payments.
Enter the City of Detroit’s Downpayment Assistance Program (DPA). The program offers grants up to $25,000 for lower-income buyers to put toward a down payment, closing costs or even paying the mortgage itself. Applicants must not have owned a home within the last three years or have lost a home in Detroit to property tax foreclosure from 2010-2016. The $6 million program funded through the American Rescue Plan Act looks to help at least 240 households.
The DPA can also open the door to even more money. A new paper published by the University of Michigan Center for Equitable Family & Community Well-Being lays out several ways buyers can stack grant and loan programs — but you have to know where to look.
Additional resources for potential homebuyers in Detroit
- Homeownership counseling through the Detroit Housing Network
- Other funding sources for mortgages, home improvement, tax assistance and more — a list by Detroit Future City
- Home purchase assistance for residents of a home facing tax foreclosure — United Community Housing Coalition’s Make It Home program
For example, the Michigan State Housing Development Authority has a 0% interest loan program, which can be combined with grants from approved lenders and Detroit’s DPA program. Together, these programs can unlock as much as $45,000 in down payment assistance. Unfortunately, many of these programs are not well publicized.
David Palmer, a real estate agent, and Patrick Meehan, program manager of the university research center, wrote this paper to get the word out about the program and help people avoid some pitfalls.
We spoke to Palmer, who is also a Detroit Documenter, about how this program could make a difference to Detroit homebuyers.
This interview has been edited for length and clarity.
Outlier Media: What makes the city’s Downpayment Assistance Program unique?
David Palmer: Participants can get up to $25,000 in down payment assistance, which is more than twice the going rate for any other previous DPA program. It’s the only DPA program I’ve ever seen where other dollars can be stacked onto it. It is the most flexible funding stream to buy a house that I’ve ever seen. This is a really great opportunity for a lot of homebuyers.
Do you think this program is going to work for people who need it?
It’s without question an amazing opportunity. Hand this paper to your Realtor or your lender and say, “How do I make this work for me?” The city is onto something here. If the city were to continue a DPA program in perpetuity, and the Detroit Housing Network becomes what I think many hope it will be — as a one-stop resource to be able to look at a range of homeownership opportunities and education — then I think we can greatly increase homeownership in Detroit.
It seems like there’s a lot of free or at least interest-free money that’s available. Why wouldn’t anyone who qualifies use it?
It’s really on the buyer to have a degree of patience. They have to fill out a bunch of forms that are really personal and dive into their finances. You’re probably adding three weeks on your expected closing date because you’ve got other layers of review with the program. That can create a delicate dance in a market where there isn’t a lot of available inventory and the seller wants to close as quickly as possible.
Also, not all of these programs are well known. These are special-purpose products that are typically geared towards underserved communities, but the lenders don’t really publicize them as an open resource for all buyers.
In the paper, you write about the lack of mortgages many of these lenders in the program have underwritten over the years. Is that a potential hitch?
Let’s look at the math. A single person getting a DPA loan can’t make more than around $44,000 a year. In a best-case scenario, they’re qualified to buy a house that’s between $70,000 and $100,000. None of these lenders prioritize loans for that amount. The DPA — no doubt — extends the purchase power of a low- to moderate-income buyer. Now, with interest rates around 7% and very limited housing stock to choose from, lenders might be more motivated to do a smaller loan because their volume has dropped off significantly.
When the program was launched, I thought it’s going to be really hard to spend all the money, because it’s been hard to get loans originated. But the program has been issuing grants at a steady clip. And the city has said that they would consider re-funding the program if the dollars get used up soon.
Update: A note was added to this interview indicating that it had been edited.